Coherent Corp. (COHR) closed Thursday's trading session at $389.57, marking a 2.8% gain for the day and a 1.2% increase from the previous week's close. The uptick came as the company secured a letter of intent for up to $50 million in U.S. CHIPS Act funding to expand its indium phosphide manufacturing facility in Sherman, Texas. However, a Reuters report on Friday revealed that China is intensifying inspections on indium exports, casting a shadow over the supply chain for this critical material used in AI data center optics.
The funding is earmarked for Coherent's 6-inch indium phosphide (InP) wafer facility, with plans to double manufacturing space, quadruple wafer output, and create over 1,000 jobs, including more than 550 roles in advanced manufacturing and engineering. CEO Jim Anderson highlighted that the expansion is driven by surging demand from AI data-center infrastructure, with the company rapidly scaling capacity to meet customer needs.
China's tightened export checks on indium, which accounts for nearly 70% of global production, underscore a significant supply-chain vulnerability for Coherent. Indium phosphide is essential for high-speed optical chips that facilitate data transfer in AI systems. While no shipments have been blocked yet, analysts warn that this could become a major bottleneck. Konrad Wang of SemiAnalysis described InP as a key choke point for AI data-center projects, while Paul Triolo of Albright Stonebridge noted that Beijing is refining its "materials chokepoint" strategy.
Coherent's stock experienced a volatile week, with a 7.5% surge on Monday followed by a similar decline on Tuesday, a slight dip on Wednesday, and a rebound on Thursday. Despite the weekly fluctuations, the stock has nearly doubled year-to-date, leaving little room for error. The company's financial performance remains robust, with fiscal third-quarter revenue of $1.81 billion, a 21% year-over-year increase, and non-GAAP earnings of $1.41 per share.
Looking ahead, Coherent provided guidance that could attract bullish investors. The company projects fiscal Q4 revenue between $1.91 billion and $2.05 billion, with non-GAAP EPS ranging from $1.52 to $1.72. CFO Sherri Luther emphasized "strong visibility into ongoing robust demand." Competition remains fierce, with Lumentum and Marvell also vying for position in the photonics space, while JPMorgan analysts maintain an overweight rating on both Coherent and Lumentum.
The CHIPS Act funding and Nvidia CEO Jensen Huang's visit to the Sherman facility underscore the strategic importance of bringing optics supply chains back to the U.S. Huang remarked that "AI factories are the infrastructure of the new industrial revolution." However, the potential for supply disruptions from China remains a key risk, as traders will watch for further headlines that could pressure optics stocks. The stock's direction may hinge on wafer production, permits, and margins, rather than just AI-driven narratives.
